corporate governance statement - kengen ir 2015 - corporate... · involves balancing the interests...

KenGen INTEGRATED ANNUAL REPORT & FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 49

CORPORATE GOVERNANCESTATEMENT Corporate Governance comprises the rules, practices and

processes by which KenGen is directed and controlled and involves balancing the interests of stakeholders who include shareholders, management, customers, suppliers, financiers, government and the community. It also provides the framework for attaining our objectives; and encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure.

KenGen INTEGRATED ANNUAL REPORT & FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 201550

KenGen has engrained corporate governance as the pivotal institutional framework through which it’s strategic objectives of the Company are set, attained and it’s performance monitored. The Board has embraced this function to direct, control and be held to account by the shareholders. Governance dictates the modus operandi of engagement and interaction between the Company’s Board, management, stakeholders and regulators for the sustainable benefit of the shareholders.

Statement of Compliance

Adherence to the highest ethical standards and embracing global best practice in KenGen’s decision-making structures has ensured compliance with applicable legal principles. The corporate vision, mission and core values underpin the Company’s transformation philosophy of achieving sustainability in value creation from generation to generation.

KenGen fully ascribes to its obligations as a listed company in compliance with the Capital Markets Authority (CMA) Corporate Governance Guidelines and the ethical standards prescribed in the Company’s Code of Conduct.

The Company is also in compliance with the governance tenets of the recently developed “Code of Governance for Government Owned Entities (Mwongozo Code)” which are inherent in the existing CMA Code of Governance Guidelines. The Mwongozo Code offers a corporate governance code for all state corporations in which Government holds ownership. The Mwongozo Code is in tandem with the CMA Corporate Governance Guidelines.

As a law abiding corporate citizen, the Company is living the tenets of the Constitution of Kenya and complying with the provisions of relevant statutes such as the Energy Act 2006, Public Procurement & Disposal Act 2005, Employment Act 2007 and Occupational Safety & Health Act 2007.

During the year, the Company was re-certified to ISO 9001:2008-Quality Management System and ISO 14001:2004-Environmental Management System. This is a recognition and demonstration of continual excellence in pursuit of the organization’s operations.

KenGen in its enviable position as a listed company, actively participated in policy review of various investor-specific legislation conducted by CMA to influence and lobby the outcome in the interest of the shareholders. Further, KenGen is a represented in the Working Group

One Committee of the Capital Markets Master Plan (CMMP) which was officially launched in November 2014. The CMMP is a 10-year strategic blue print for the Kenyan capital markets for which the four formally consituted Working Groups are to provide the operational implementation path for actualization of long term financial and economic goals as set out in the national development plan.

Board Charter

The Board Charter guides the Board in the exercise of its responsibilities by providing a concise overview of:

• The separation of the roles, functions, responsibilities and powers of the Board and individual directors;

• Powers delegated to the board committees of the Company;

• Matters reserved for final decision-making by the Board; and

• Policies and practices of the board on matters of corporate governance, directors declarations and conflicts of interest, conduct of board meetings and procedures, and the nomination, appointment, induction, training and evaluation of members of the Board.

The Charter does not in any way purport to replace or supersede any laws and regulations that govern the Company.

Board Composition

The KenGen Board is made of eleven (11) members made up of a non-executive and independent Chairman, one executive Managing Director & CEO, the Cabinet Secretary-National Treasury, Principal Secretary-Ministry of Energy & Petroleum, plus seven independent and non-executive directors. The composition of the Board is as outlined in the Articles of Association of the Company.

During the last Annual General Meeting and as per the Articles of Association of the Company on Rotation of Directors; three Board members retired and two directors did not offer themselves for re-election. As a result, two new independent and non-executive directors were elected by the shareholders to join the KenGen Board.

Corporate Governance Statement


Board Diversity

The Board has the following diverse set of skills:

Field of Expertise NumbersEconomics 3Finance 2Engineering 2Geology 1Supply Chain 1Business Management 3Law 1

KenGen continues to comply with the 1/3 gender balance parity as outlined below:

The biographies of the Directors are published on page 26 - 29.

Board Effectiveness

Separation of Powers & Duties of the Chairman and Managing Director & CEOThe separation of the functions of the Chairman and the Managing Director& CEO ensures the independence of the Board and Management. The requisite balance of power, increased accountability, clear definition of responsibilities and improved decision making is attained through this distinction between the non-executive and executive roles.

Role of the BoardThe Board offers strategic guidance, leadership and control of the Company by defining its strategic intent, its objectives and values; reviews this strategic direction and adopts business plans proposed by Management. With retention of full and effective control over the Company. The Board monitors Management’s implementation of the plans and strategies, ensures ethical behaviour and compliance with relevant laws and regulations, audit and accounting principles, corporate policies & procedures and the Code of Ethics.

It evaluates performance of Management against targets and objectives and benchmarks performance of the Company against best international practices. The Board considers and approves the Company’s overall budget and specific proposals for capital expenditure & acquisitions plus strategic opportunities. It reviews succession planning for the management team and approves senior executive appointments, organisational changes and remuneration.

The Board constitutes and reviews composition of Board Committees and approves reports and performance of each Board Committee. It further approves the quarterly, interim and preliminary financial statements, annual report & accounts, quarterly management accounts and operational report from the Managing Director & CEO and public announcements of a material nature.

Directors ResponsibilitiesThe Articles of Association of the Company and the Board Charter enumerates the responsibilities of the directors. Execution of the mandate of the Board requires each director to observe a code of conduct aligned to their duties and responsibilities to the Company and shareholders, and act within limitations as defined in the Charter while in observing to the principles of good corporate governance.

Each director subscribes to uphold and promote effective and responsible use of Company resources and undertakes to act in good faith, with care and prudence in the best interest of the Company while exercising his/her power and executing his/her duties. The Directors are expected to familiarise themselves with the relevant regulations and statutes, the Memorandum and Articles of Association of the Company, the Board’s operating norms and procedures, and any other requirements necessary for the discharge of their duties.

Further, the directors commit that, while taking into account the financial impact of their decisions, shall consider the consequences for sustainable development, effect on relations with stakeholders and interest of the society in general. Directors are expected to be fully aware that they are individually and collectively responsible for deciding the Company’s vision, mission and values, its strategic objectives, ensuring the establishment of the organisational structure, putting in place policies to achieve the objectives as well as ensuring effective control over the Company, and accounting to shareholders.


Male - 7 Female - 4


Upon appointment to the Board, new directors embark on a detailed programme to familiarize themselves with the Company’s business and operating environment. Literature is provided and meetings arranged with senior management team. Visits to power stations are also organised. During the year, the new directors undertook this program

During the year, the directors undertook various training and development programs in risk management, relevant energy conferences and forums to ensure they update their skills and knowledge as well as keep abreast of developments in corporate governance. Biannually the members of the Board attend the specialised ‘5-day Corporate Governance Training for Directors’ offered by the Centre for Corporate Governance, Kenya

The Board conducts an annual evaluation of the Board as an entity, its committees and each individual Director to gauge performance. This is done by an independent consultant

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Board Effectiveness

Board Meetings

The Board meets at least once quarter or more often in accordance with requirements of the business.

The Board work plan and calendar of meetings is prepared in advance. Adequate notice is given for each board meeting, the agenda and papers are circulated in good time.

The Board was reconstituted in January 2015 when two (2) new members were appointed at the AGM.

The Board held 10 meetings which were attended as follows:

No. Name Attendance1. Joshua Choge 92. Albert Mugo 103. Henry Rotich 64. Joseph Njoroge 45. Dorcas Kombo 106. Hedrick Omanwa 107. Henry M’Narobi 98. Ziporah Ndegwa 99. Millicent Omanga 810. Musa Arusei 5 (Appointed in December 2014)11. Kairu Bachia 5 (Appointed in December 2014)

(Sarah Wainaina and George Njagi attended meetings until 16th December 2014 when they retired from the Company.)

The Board has an elaborate program based on good

governance practice to ensure development of the Board

members in various facets in order to strengthen oversight role and promote Board effectiveness



Individual Directors Shareholding

No member of the Board holds shares in his or her personal capacity that exceeds 1% of the total shareholding of the company. The breakdown of the Directors personal shareholding in the Company as at 30th June 2015 is as follows:

Name No. Of Shares % HoldingJoshua Choge - - Albert Mugo 184,831.00 0.0001 Henry Rotich - - Joseph Njoroge - - Dorcas Kombo - - Hedric Omwanwa 6,431.00 0.0000 Henry M'Narobi 123,500.00 0.0001 Zipporah Ndegwa - - Millicent Omanga - - Humprey Muhu 812.00 0.0000 John Omenge - - Musa Arusei - - Kairu Bachia 60,600.00 0.0000

376,174.00 0.0002 Directors Remuneration

In accordance with the guidelines provided in the State Corporations Act and the shareholder approval granted at the Annual General Meeting, the Directors are paid annual fees, taxable sitting allowance for every meeting attended, as well as travel and accommodation allowance while on Company duty. The Chairman is paid a monthly honorarium. KenGen does not grant personal loans or guarantees to its directors. It is proposed that each director receives fees of Shs 600,000 per annum for the financial year ended 30 June 2015. The amount paid to the non-executive directors is as below:

No loans were granted to any non-executive director.

Declaration of Interest and Conflict of InterestThe directors are obligated to fully disclose to the Board any real or potential conflict of interest, which comes to his/her attention, whether direct or indirect. The statutory duty to avoid situations in which they have or may have interests that conflict with those of the Company has been

2015Shs'000

2014Shs’000

Fees 6,000 6,000Other emoluments 14,804 14,818

20,804 20,818

observed by the Board. All business transactions with all parties, directors or their related parties are carried out at arms’ length.

An acknowledgement that should it come to the attention of a director that a matter concerning the Company may result in a conflict of interest, obligates the Director to declare the same and exclude himself/herself from any discussion or decision over the matter in question.

At every meeting of the Board, an agenda item exists which requires members to make a declaration of any interest they may have in the business under discussion.

Business transactions with the directors or their related parties are disclosed on page 153.

All the Board committees including the Audit & Risk Management committee, are established with written terms of reference detailing their mandate, authority and duties.

The appointment of new members to the Board at the last Annual General Meeting resulted in the reconstitution of the membership of the Committees in January 2015. The Company Secretary who is a member of the Institute of Certified Secretaries of Kenya (ICPSK), is the Secretary to all the committees.



Report from the Chairperson of the Audit & Risk Management Committee

Mandate

The Audit & Risk Management Committee’s duties are based on six broad functions namely the Internal Control, Risk Management and compliance, financial reporting, internal audit, external audit, compliance with laws and regulations; and compliance with the Ccmpany’s Code of Conduct and ethical guidelines.

The Committee assesses effectiveness of the Company’s internal control and risk management and compliance framework. It reviews the impact of significant accounting and reporting issues such as professional and regulatory pronouncements; meets the management and both external & internal auditors to review the financial statements and results of the audit process; and assesses if generally accepted accounting principles have been consistently applied in the preparation of preliminary announcements & interim financial statements.

Membership

Its membership comprises of four independent and non-executive directors.

Appointment to the Committee is for a period of three years but may be extended for two further three-year periods, provided the director remains independent. The Chairman of the Committee is an independent, non-executive director.

The Committee routinely invites the Finance & Commercial Director and Internal Audit Manager who are both members of the Institute of Certified Public Accountants of Kenya (ICPAK) to its meetings.

It also invites a representative of the external auditors when reviewing the audited results.

Attendance

The Committee held 10 meetings which were attended as follows:

NameAttendance

July – Dec 2014 Jan – Jun 20151. Henry M’Narobi 102. Humphrey Muhu (Alternate to Henry Rotich) 73. Dorcas Kombo 104. Millicent Omanga 105. Kairu Bachia * 3 (Appointed in January 2015)

(Henry M’Narobi was a member of the Committee until January 2015)

* Member not in the committee of the Board

Hedrick Omanwa

The Committee is responsible for the internal audit & risk management function by ensuring management acts on audit and risk management reports; reviews the performance and considers the independence of the external auditors; and confirms that all regulatory compliance is considered in the preparation of financial statements; and its meetings and invites a representative of the External auditors when reviewing the audited results.



Report from the Chairperson of the Strategy Committee

Mandate

The Strategy Committee assists the Board in discharging its oversight duties with respect to the overall strategic direction of the Company, operational performance and organizational health. It reviews the Company’s strategy and investment policies and makes recommendations to the Board on issues of strategy adjustment. It also assesses the progress of the Company’s strategy execution through identification of priority areas. The Committee monitors, evaluates and oversees the Company’s health including the review of financial and business plans and the overall performance management system.

Henry M’Narobi

Membership

Its membership consists of four non-executive directors.

Attendance


NameAttendance

July – Dec 2014 Jan – Jun 20151. Henry M’Narobi 72. Humphrey Muhu (Alternate to Henry Rotich) 53. Ziporah Ndegwa 74. Albert Mugo 75. Hedrick Omanwa * 3 (Appointed in January 2015)

(The PS-Energy & Petroleum was a member of the Committee until January 2015)




Report from the Chairperson of the Human Resource Committee

Mandate

The Committee monitors the policies and practices of KenGen in relation to human resources, offers advice and recommendations on the Company’s human resource strategies, initiatives and policies; and the nomination and remuneration of directors and senior management.

The Committee’s duties are based on three broad functions namely the human resources, nominating and remuneration.

Human Resources function

The Committee continually reviews the organizational structure, core functions and optimum establishment; policies and procedures on staff recruitment and selection, staff training and development for operational efficiency, performance and reward system and capacity enhancement and reviews the terms and conditions of service in line with organisational strategy. Further, it reviews the Company’s human resource policies and recommend amendments to the Board for approval.

Nominating function

The Committee supports and advices the Board on the appropriate size and composition that will enable it discharge its responsibilities, transparent procedure for selecting new directors for appointment and re-selection to the Board; evaluation of the performance of the Board, the various committees and individual directors.

Remuneration function

The Committee reviews the Company’s remuneration, recruitment, retention, incentive and termination policies and procedures for executive directors and senior managers; their basic salary & the criteria for payment of bonuses to all staff and monitor its operation, considers any recommendations of the chairman or Managing Director/CEO of the Company regarding payment of bonuses or performance related remuneration.

Membership

The Committee is authorised by the Board to secure the attendance of external advisers at its meetings if it considers necessary, and to obtain reliable, up-to-date information about any of its business.

Attendance


NameAttendance

July – Dec 2014 Jan – Jun 20151. Dorcas Kombo 92. Momata Gichana (Alternate to Joseph Njoroge) 33. Albert Mugo 94. Henry M’Narobi 95. Musa Arusei * 4 (Appointed in January 2015)

(Sarah Wainaina was a member of the Committee until January 2015)


Dorcas Kombo



Report from the Chairperson of the Procurement Oversight Committee

Mandate

The Committee is mandated to approve proposals of the tender committee for contract awards for strategic procurements. It also approves all the annual procurement plans and reviews all the quarterly procurement reports for submission to the Board. It has the oversight role to ensure compliance to the Public Procurement and Disposal Act 2005 and the Public Procurement and Disposal Regulations 2006.

Ziporah Ndegwa

Membership


Attendance

The Committee meets once a month or as when strategic procurement need to be reviewed.


NameAttendance

July – Dec 2014 Jan – Jun 20151. Ziporah Ndegwa * 8 (Appointed in January 2015)2. Joshua Choge 113. Millicent Omanga 124. Albert Mugo 125. Henry M’Narobi * 7 (Appointed in January 2015)

(Sarah Wainaina and George Njagi were members of the Committee until January 2015)




Report from the Chairperson of the Financial Advisory Committee

The Committee meets on a quarterly basis or at such times as required by the business and reviews the investment performance of the PIBO funds to ensure adequate and competitive returns. It reviews at least semi-annually the repayment of the PIBO funds to ensure the fulfilment of repayment obligations, adequacy of cash flow and any other factors that may be necessary to monitor. It also monitors on a quarterly basis the Company’s key financial ratios and any other issues relevant to the PIBO Fund.

Membership


Attendance


NameAttendance

July – Dec 2014 Jan – Jun 20151. Musa Arusei * 2 (Appointed in January 2015)2. Humphrey Muhu (Alternate to Henry Rotich) 4 3. Albert Mugo 44. Momata Gichana (Alternate to Joseph Njoroge) * 1 (Appointed in January 2015)5. Kairu Bachia * 2 (Appointed in January 2015)

(Ziporah Ndegwa and Hedrick Omanwa were members of the Committee until January 2015)


Mandate

The Committee was established to oversee the activities of the Financial Arranger and Advisor in particular, and adherence to the terms of reference of the contract signed with KenGen

Further, the Committee oversees the implementation of the overall investment plan for the PIBO funds, as per the Information Memorandum, Ministerial approvals and asset allocation for cash and cash equivalents with respect to fixed-income securities and equities. It reviews management’s short- term investment recommendations, including permissible types of investments, with respect to uncommitted PIBO funds and advises as necessary.

Musa Arusei




Executive Management Committee (EXCO)

The Managing Director & CEO and all the divisional directors make up the EXCO. This Committee serves as a link between the Board and Management. EXCO’s mandate and responsibility is ensuring compliance with the statutory and regulatory framework, and guidelines and adherence to Company policy and procedures. Its meetings are convened on a weekly basis to discuss strategy formulation and implementation, policy matters and financial performance.

Internal Controls & Risk Management

The risk management agenda of the Company is a critical responsibility for the Board. The Company’s comprehensive system of internal financial control ensures that adequate systems are maintained. Effective internal control systems to assess and mitigate any risks to which the Company may be exposed to, for effective internal financial management have been operationalised.

The Company’s policy on the risk management framework which identifies, measures and manages risks has been put in place by the Board and integrated in the overall management reporting structure. These risks are further demarcated onto the Strategic Corporate Risk Matrix which is closely monitored by the Board. The Audit & Risk Management Committee of the Board regularly reviews the effectiveness of the internal control system. The Head of the Internal Audit & Risk Management Department reports directly to the Board’s Audit & Risk Management Committee.

Ethics and Code of Conduct

Corporate governance is engrained as a valuable contributor to the long-term success of the Company through the creation of the right culture throughout. The core values of integrity, professionalism, team spirit and emphasis on safety culture steer our Company’s organizational health and decision-making processes. Owing to the dynamic business environment, The Company periodically conducts culture baseline survey in view of the dynamic business environment so as to review and improve the existing culture in the organisation.

The Company conducts its business in compliance with relevant legal principles and high ethical standards of business practice. The Board, Management and employees are required to observe the code and high standards of

integrity. Further, these standards are applied in all dealings with customers, suppliers and other stakeholders.

Going Concern

The Board confirms that the Company has adequate resources to continue in business for the foreseeable future. For this reason, it continues to adopt the going concern basis when preparing financial statements.

Engagement with Shareholders

In the endeavour to actively engage with shareholders, KenGen strives to provide regular and timely information. The interim and annual results are always published in the local daily newspapers. In accordance with Article 137 of the Articles of Association of the Company, the Annual Report & Accounts is posted on our website; www.kengen.co.ke at least 21 days before the Annual General Meeting (AGM) to ensure that all the shareholders are well informed. Further, the Company’s website offers a platform for shareholders to quickly access corporate information.

All directors attended the last AGM held on16 December 2014 and were available to answer questions from shareholders.

Shareholding

In line with the continuing obligations for listed companies as prescribed by the Capital Markets Authority and Nairobi Securities Exchange, KenGen files, investors’ returns on a monthly basis.

TEAM SPIRIT

SAFETYCULTURE

PROFESSIONALISM

INTEGRITY


No. of Shares %

1. Cabinet Secretary-The National Treasury 1,538,853,019 70.002. Coop Custody A/C 4018 12,140,000 0.553. Standard Chartered Nominees Limited A/C 9230 8,824,000 0.404. Chase Bank (Kenya) Limited 8,145,755 0.375. Kenya Commercial Bank Limited A/C 915B 8,086,825 0.376. CfC Stanbic Nominees Ltd A/C NR1030682 7,634,600 0.357. Standard Chartered Nominees Limited A/C 9098AC . 7,603,931 0.358 Standard Chartered Nominees Limited A/C KE11401 6,154,655 0.289. Standard Chartered Nominees Limited A/C KE11450 6,154,654 0.2810. CfC Stanbic Nominees Ltd A/C 57601 5,950,963 0.27

1,609,548,402 73.22192, 793 other shareholders 588,813,054 26.78

Total 2,198,361,456 100.00

DISTRIBUTION OF SHAREHOLDERS

RangeNo. of

Shareholders Shares % Shareholding

1 – 500 88,501 22,384,561 1.02501 - 1,000 39,827 31,747,227 1.441,001 - 5,000 43,647 93,107,902 4.245,001 - 10,000 16,673 109,613,597 4.9910,001 - 50,000 3,331 65,946,129 3.0050,001 - 100,000 390 27,557,026 1.25100,001 - 500,000 305 68,444,012 3.11500,001 - 1,000,000 55 40,715,241 1.85Above 1,000,000 74 1,738,845,761 79.10

Total 192,803 2,198,361,456 100.00

INVESTOR POOLSNo. of

Shareholders Shares % ShareholdingLocal Institutions 8,223 1,782,423,101 81.08Local Individuals 183,593 378,035,676 17.20Foreign Investors 987 37,902,679 1.72

Total 192,803 2,198,361,456 100.00

Shareholding

LIST OF TEN LARGEST SHAREHOLDERS AS AT 30 JUNE 2015

corporate governance statement - kengen ir 2015 - corporate... · involves balancing the interests...

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